Brookfield has developed a significant business line in transition investing, raising almost C$30B across three funds. Brookfield’s transition-labeled funds are guided by its Operating Principles for Impact Management document (OPIM).
1 This includes the defining, management, and assessment of strategic impact objectives, and measurement and mitigation of negative impacts. But, the OPIM is overly vague, and not compliant with existing and emerging green and transition taxonomies. This fosters business risk with the potential to allocate “transition” investments into activities that lock in emissions and undermine net-zero commitments.
This is particularly relevant to LNG, which the Brookfield Infrastructure CEO called a “leading transition fuel in the move toward net zero.” 2 Across other business lines, Brookfield is one of the largest investors in LNG in the world, ranking 8th largest with US$5.25B invested.
3 Branding LNG as a “transition fuel” and potentially including such projects in Brookfield’s
transition funds is only possible due to several loopholes in the OPIM. For example, it states that Catalytic Transition Fund investments will be chosen using “the relevant regional decarbonization pathways.” 4 But Brookfield does not identify any such
pathways specifically, obscuring the magnitude and timing of permissible carbon-intensive assets. For its other transition funds, Brookfield vaguely says it will use relevant sectoral methodologies.
Without references to specific decarbonization models, Brookfield cannot deal with the issue of carbon lock-in, which is not mentioned anywhere in the OPIM. For example, a study finds existing and proposed LNG projects take up more of the 1.5°C-aligned carbon budget, as modelled by the Intergovernmental Panel on Climate Change, than would be allotted to all natural gas globally. 5 This means any additional LNG projects are by definition carbon lock-in.
Furthermore, while the OPIM says Brookfield will report fund emissions using standards such as the GHG Protocol and Partnership for Carbon Accounting Financials, Brookfield’s current emissions disclosures lack the scope 3 categories which capture LNG’s lifecycle emissions. New studies show that when leakage is factored in, LNG can be higher-emitting than coal, and
is never much better.
6
With these gaps, the OPIM leaves the door open to projects that are not compliant with existing
or emerging taxonomies that spell out transition eligibility such as those in the European Union, 7 Australia, 8 and Canada.
9 None of these permit new gas production projects. Given these gaps and Brookfield’s overall support for LNG, investors in its transition funds face the risk that their capital will be deployed in projects that are antithetical to net zero. The
resulting loss of credibility for Brookfield would pose a business risk as investors seek more credible alternatives. For these reasons, shareholders ask that Brookfield issue clearer criteria for its transition funds to ensure that all invested assets align with net zero.